Deck 14: Tax Planning

Question 1

Which of the following is the average tax bracket?

A) Tax on next dollar earned/Next dollar earned.
B) Total income tax outlays/Taxable income.
C) Next dollar earned/Tax on next dollar earned.
D) Taxable income/Total income tax outlays.
E) None of the above.

Answer 1

B

Question 2

If the tax on the next dollar earned is $84, the next dollar earned is $184, the total income tax outlay is $31,500, and the taxable income is $105,000, what is the marginal tax bracket?

A) 25%
B) 30%
C) 40%
D) 200%
E) None of the above.

Answer 2

B

Question 3

Evelyn found an additional tax deduction of $3,000. She was in the 20 percent average tax bracket and the 30 percent marginal one. If she stays in the same tax brackets, how much will her tax bill be lowered?

A) $900.
B) $600.
C) $700.
D) $500.
E) None of the above.

Answer 3

A

Question 4

Heather expects taxable revenues of $123,450 in the current year. Her adjustments to revenues are projected to be $13,430 this year. Her deductions and exemptions are projected at $45,300. There is no state income tax where Heather resides. What is her federal tax under an assumed 30% average tax bracket?

A) $19,254.
B) $19,410.
C) $19,416.
D) $19,420.
E) None of the above.

Question 5

Which of the following is not a technique through which to reduce taxes?

A) Deferrals.
B) Conversions.
C) Transfers.
D) Eliminations
E) All of the above are techniques though which to reduce taxes.

Question 6

Lucy expects taxable revenues of $68,000 in the current year. Her adjustments to revenues are projected to be $3,000 this year. Her deductions and exemptions are projected at $23,000. There is no state income tax where Lucy resides. What is her federal tax under an assumed 20% average tax bracket?

A) $7,300.
B) $8,400.
C) $9,500.
D) $10,600.
E) None of the above.

Question 7

The fact that taxes influence the timing of transactions and preparation for payment of sums due is an example of the tax impact on:

A) Investments.
B) Cash flow planning.
C) Financing.
D) Risk management.
E) None of the above.

Question 8

The after-tax return divided by one minus the marginal tax bracket is the:

A) Average tax bracket.
B) Average tax return.
C) Pretax equivalent return.
D) Pretax equivalent tax bracket.
E) None of the above.

Question 9

After-tax return is equivalent to:

A) Pretax return / (1-marginal tax bracket).
B) Pretax return * (1 + marginal tax bracket).
C) Pretax return / (1 + marginal tax bracket).
D) Pretax return * (1-marginal tax bracket).
E) None of the above.

Question 10

If the tax on the next dollar earned is $24, the next dollar earned is $60, the total income tax outlay is $30,000, and the taxable income is $120,000, what is the marginal tax bracket?

A) 25%
B) 30%
C) 40%
D) 200%
E) None of the above.

Question 11

Under which of the following sections of the tax return does student loan interest fall?

A) Income.
B) Adjustments.
C) Deductions.
D) Exemptions.
E) None of the above.

Question 12

Stan expects taxable revenues of $83,354.45 in the current year. His adjustments to revenues are projected to be $48,756.32 this year. His deductions and exemptions are projected at $8,234.43. There is no state income tax where Stan resides, and his assumed tax bracket is 30%. What is his taxable income?

A) $83,354.45.
B) $34,598.13.
C) $34,597.13.
D) $26,363.70.
E) None of the above.

Question 13

David expects taxable revenues of $110,333 in the current year. His adjustments to revenues are projected to be $18,222 this year. His deductions and exemptions are projected at $35,666. There is no state income tax where David resides, and his assumed tax bracket is 30%. What is his adjusted gross income?

A) $19,110.24.
B) $19,112.50.
C) $19,113.50.
D) $19,110.50.
E) None of the above.

Question 14

Dollar-for-dollar reductions in gross tax are:

A) Adjustments.
B) Other taxes.
C) Credits.
D) Total tax due.
E) None of the above.

Question 15

Which of the following is an example of the tax impact on risk management?

A) Taxes influence the timing of transactions and preparation for payment of sums due.
B) The calculation of returns is often done on an after-tax basis.
C) The calculation of the cost of borrowing is done on an after-tax basis.
D) There is often a clear preference for tax-deductible employee health and life insurance.
E) None of the above.

Question 16

Which of the following is the marginal tax bracket?

A) Tax on next dollar earned/Next dollar earned.
B) Total income tax outlays/Taxable income.
C) Next dollar earned/Tax on next dollar earned.
D) Taxable income/Total income tax outlays.
E) None of the above.

Question 17

Which of the following is not one of the standard deductions on the tax planning statement?

A) Deductible medical and dental expenses.
B) Deductible taxes.
C) Deductible interest.
D) Deductible deposits.
E) All of the above are standard deductions on the tax planning statement.

Question 18

Which of the following best characterizes tax planning?

A) It is the analysis and implementation of strategies to reduce tax expenditures.
B) It is the analysis and implementation of strategies to delay tax expenditures.
C) It is the analysis and implementation of strategies to hide tax expenditures.
D) It is the analysis and implementation of strategies to eliminate tax expenditures.
E) None of the above.

Question 19

When an additional tax deduction is identified, which of the following represents the amount by which taxes will be lower?

A) Amount of deduction*Marginal tax bracket.
B) Amount of deduction*Average tax bracket.
C) Amount of deduction*(1 + marginal tax bracket).
D) Amount of deduction*(1 + average tax bracket).
E) None of the above.

Question 20

Which of the following represents the total marginal tax bracket?

A) Marginal federal bracket - Marginal state bracket - Marginal local bracket + Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
B) Marginal federal bracket + Marginal state bracket + Marginal local bracket - Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
C) Marginal federal bracket - Marginal state bracket - Marginal local bracket - Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
D) Marginal federal bracket - Marginal state bracket + Marginal local bracket - Marginal federal bracket * (Marginal state bracket - Marginal local bracket).
E) None of the above.

Question 21

Which of the following is not a type of income from investment activities?

A) Ordinary.
B) Medium-term capital gains and losses.
C) Dividend.
D) Short-term capital gain and losses.
E) All of the above are types of income from investment activities.

Question 22

The tax strategy of timing income and expenses is implemented through:

A) Delay selling an investment that has risen in value until the New Year.
B) Delaying selling an investment that has appreciated in value until it qualifies for favorable long-term capital gains treatment.
C) Selling investments with losses to reduce current taxes.
D) Selecting the year to declare a gain or loss to take tax advantage of a more favorable marginal tax bracket.
E) None of the above.

Question 23

Share decline in the interim while waiting to sell is the risk associated with:

A) Tax deferral.
B) Postponing capital gains to the New Year.
C) Increasing deductible expenses and credits.
D) All of the above.
E) None of the above.

Question 24

For each of the following areas of the financial plan, please provide an example of the tax impact.
(a) Cash Flow Planning.
(b) Investments.
(c) Financing.
(d) Risk Management.
(e) Retirement Planning.
(F) Estate Planning.

Question 25

Do Roth IRAs provide tax deferral?

A) Yes.
B) No.
C) Yes, for contributions less than $1,000.
D) No, for contributions greater than $500.
E) None of the above.

Question 26

The tax strategy technique of postponing capital gains until held more than one year is implemented through:

A) Delay selling an investment that has risen in value until the New Year.
B) Delaying selling an investment that has appreciated in value until it qualifies for favorable long-term capital gains treatment.
C) Selling investments with losses to reduce current taxes.
D) Selecting the year to declare a gain or loss to take tax advantage of a more favorable marginal tax bracket.
E) None of the above.

Question 27

Placing money into a 401(k) pension plan is an example of:

A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.

Question 28

Which of the following is an example of conversion?

A) Shifting income from a higher to a lower income person.
B) Transforming income from one taxed at an ordinary income tax rate to taxation at a more favorable rate.
C) Selling investments with losses to reduce current taxes.
D) Both a and b.
E) Both b and c.

Question 29

Which of the following is not a factor that can lead to your marginal tax bracket varying from year to year?

A) Fluctuations in income earned.
B) Unusually high or low deductible expenses.
C) A change in the country's taxation methods or tax brackets.
D) All of the above are factors that can lead to your marginal tax bracket varying from year to year.
E) None of the above is a factor that can lead to your marginal tax bracket varying from year to year.

Question 30

Which of the following is not an individual tax-advantaged investment?

A) Roth IRA.
B) Home.
C) Real estate investment.
D) Series EE bonds.
E) All of the above are individual tax-advantaged investments.

Question 31

Please list and explain eight tax planning strategies.

Question 32

Purchasing municipal bonds in the state in which you reside is an example of:

A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.

Question 33

Please detail the principal components of the tax return.

Question 34

New Series EE bonds purchased will earn a fixed rate of interest effective:

A) May 2005.
B) May 1995.
C) April 1995.
D) April 2005.
E) None of the above.